Clearly, an overwhelming majority of respondents believes that SAP will be acquired (not everyone voted in the second poll). 225 of 341 (66%, or just a shade under 2/3, of) Over 70% of respondents indicated a belief that SAP will be acquired. IBM was the leading contender, with 29% 34% of respondents, followed by Microsoft with 18%, and HP with 7%. Of those expressing an opinion as to when SAP will be acquired, 10% believe it will be announced in the first half of 2010, 34% 37% go with the second half of this year, and 17% 31% believe it will be next year.

Can SAP be acquired?

Obviously, SAP can be acquired. It is for sale every day on multiple stock exchanges. The founders might have to be negotiated separately, but, yes, the company could be acquired - theoretically.

In practicality, there are a large number of issues that would make an acquisition of SAP very challenging.

The founders own a controlling share of the company. Their support would be essential for any acquirer. At the moment, the founders do not seem to have an interest in the company being acquired, but this can change. The founders might like to be the largest shareholders in IBM (for example) some day - or (to put it indelicately), their heirs might.

The remaining shareholders have to approve an acquisition with a large majority. This could happen only if they expected that the company's management would provide a significantly worse return on their equity than would an acquirer. This is not so hard to imagine, particularly if the latest management shake-up fails to produce a return better than the market as a whole, and if a suitor would propose an acquisition with a significant premium.

Projected customer retention would have to justify the purchase price. Given how hard it is to move off SAP, and given the current difficulties with third-party support models, this criterion seems to be easily satisfied, at the right price for the company.

European and national regulators (e.g., in the US, Russia, and China) would have to be satisfied that the acquisition of the company would not decrease competition in the market. This criterion would be satisfied if the acquirer were not a major applications supplier prior to the merger, and particularly if Oracle were surging or SAP were showing signs of an impending collapse. Passing this hurdle would be tricky, although AT&T, Cisco, Wipro, or others should be able to overcome this; Oracle and Microsoft would have significant challenges based on their applications portfolio (although they could divest), and IBM and HP might have smaller challenges based on their size and control of the enterprise market in various segments.

The most challenging issues could be with national labor laws, particularly in Germany. These labor laws restrict the types of changes that can be made by the company without approval from the workers, such as reductions in force, changes to compensation levels or structures, and changes in management and reporting structures. Any acquisition of SAP will require approval from the German workers, and this may be difficult to obtain, particularly if the founders give up their standing by offering to sell their shares to a foreign company.

Summary, and my €0.02

Given all these issues, an acquisition of SAP is very unlikely in the short term, and perhaps could not occur unless SAP faces an existential crisis. Many would argue that such a crisis is looming, as evidenced for example by the results of the poll above. Time will tell. Regardless, I would advise employees of SAP to focus on overcoming the company's short-term challenges, and exploiting the opportunities within its grasp.

Today, the other shoe dropped. Several pieces of news were announced, but the big one is that John Schwarz left SAP, effective immediately. Schwarz was the CEO of Business Objects prior to its acquisition by SAP. He was considered by insiders and outsiders as an excellent candidate for CEO of SAP after spending enough time at the company. His departure further weakens an already-thin management team.

The other announced news is that Gerhard Oswald is becoming SAP's COO, and that Peter Lorenz is joining SAP's team of corporate officers. Oswald was rumored to be leaving this year, as his responsibilities were transitioning to Bernd-Michael Rumpf. However, Ernie Gunst had to leave SAP due to health reasons, opening up the COO position. While the COO role is a relatively new position at SAP, perhaps the company thought it best to keep some stability by retaining Oswald. Not clear yet is whether Oswald will retain responsibility for services and support.

Will there be even more changes coming at SAP? Most likely. The Business Objects leaders supported by John Schwarz will not have air cover anymore, putting their status and longevity in doubt. With Snabe moving up a level, and with Schwartz leaving, there are also many questions about how the product side of the house will be organized. As of the January announcement, Schwarz was set to run product management, with Snabe running development. That transition has not yet occurred, but all the changes were planned and internally known. Much of that planning will have to be re-done now.

The abruptness of these changes leads to doubt about whether they were thoughtfully planned out. Some of the changes make a great deal of sense (making Vishal Sikka a member of the executive board, making Peter Lorenz a corporate officer and bringing together all the small and medium enterprise efforts under his purview), but many of these changes do not appear to have had the luxury of thorough planning. SAP needs to improve the strength of its management team, and the latest changes imply that SAP needs to work hard to make it possible for "outsiders" to succeed at SAP over the long term.

Tuesday, February 9, 2010

Well, there has been plenty of speculation that SAP will be acquired, and even that the departure of Leo Apotheker increases the probability of this happening. With that in mind, and obviously in a completely unscientific sampling, here are two polls: the first on who (if anyone) might acquire SAP, and the second on when …

This weekend, it was announced that Leo Apotheker was leaving SAP immediately. Leo had been SAP's CEO. Replacing Leo would be co-CEO's Jim Snabe (focusing on technology) and Bill McDermott (focusing on sales). Also announced was the elevation of Vishal Sikka, the company's CTO, to SAP's Executive Board (the management board).

Recently, it had been widely rumored that Leo's contract would not be renewed, and that a new CEO (or co-CEOs) would be brought in to replace him. Names bandied about for his replacement included:

Wendelin Wiedeking, a former CEO of Porsche, currently being investigated for insider trading,

Jim Hagemann Snabe, head of products at SAP, and a member of the executive board there,

William (Bill) McDermott, head of the field (sales and services) at SAP, and a member of the executive board there, and

John Schwartz, former CEO of business objects, and a member of the executive board of SAP.

Apparently, the rumor mill was fairly efficient this time.

This morning, SAP had a conference call led by Hasso Plattner, and including the SAP executive team. While I couldn't participate, thanks to the magic of twitter, I was able to follow along. Below are some of the key tweets that came out during the call - definitely gives a good flavor of what happened, although not quite a transcript:

twailgum#leogone I said it last night, and I'll say it again: "SAP, Who Are You?" Hasso offered direction this a.m. We'll see where this all goes.rwang0#leogone gives #SAP a chance to start a new. Focus needs to be on products http://bit.ly/9mEuQ0rwang0Not sure why Plattner references Oracle's best years with Ellison and Ray Lane #sap#leogonemonkchips"we made legal and political mistakes. we made a mistake, now we need to work to regain the trust of customers" #sap#leogone bout time!!!hscheppHasso: Customers have to maintain and innovate. SAP will help them to achieve both! #sap#leogonesigWith Hasso at the helm I expect to hear a lot about "massive.." this and that technology from #sap until further notice :) #leogoneyojibeeHasso: It would be wonderful to be a startup company without a history #leogone <<>hscheppHasso predicts "significant changes" in enterprise computing #sap#leogoneyojibeeHasso's answers to why Léo left: "I decided I will only make forward looking statements." #leogoneyojibeeBill and Jim will keep their responsibilities, but increase the scope of their roles. They won't be just CEOs #leogoneamitsharma1382Is anyone thr, is anybody out there who still feels #SAP is not a cmpny which respects employees, #leogone is your answer .salute 2 candidpaulhamerman#SAP#leogone co-CEOs have been used before at SAP, usually as part of a transition of power. Seems to be a bit different this time.yojibeeHasso: I am responsible for making the change. #leogoneyojibeeCo-CEO was never a short-term strategy. One is focusing externally on customers/sales and one is focusing internally on development #leogonehscheppHasso: In order to be profitable you have to be a happy company #sap#leogonepaulhamerman#SAP#leogone Kudos to Hasso for his candor about the trust issue.MichaelKrokerPlattner: "Have to re-establish trust between differenz parts of #SAP, ie. Management, Supervisory board, Employees & Customers" #leogoneyojibeeHasso: Thank you customers. To endusers: please trust us, we haven't forgotten about you #leogonemonkchipsto end users: "please trust SAP, we have not forgotten you". is Plattner reading from Renault's script? #leogonepaulhamerman#SAP#leogone New in memory DB will be showcased at Sapphire Orlando.hscheppHasso: Now talking about ByD. "Looks good now. Optimistic this year will be very good for ByD." #leogone#sapyojibeeThe lack of success of ByD was not a reason why the contract with Léo wasn't extended #leogone#sapyojibeeHasso: We have strengthened our focus on on-demand solutions. (mentions @12sprints) #sap#leogonehscheppHasso: No disagreements about strategy with Leo. #leogone#sapyojibeeHasso: Focus is on growth, margin and innovation #sap#leogonehscheppHasso: All areas of SAP has to accept the strategy of change. #sap#leogonepaulhamerman#SAP#leogone Ernie Gunst, COO of SAP, has left for health reasons.monkchipsso Hasso runs SAP. tell us something we didn't know. #leogoneyojibeeHasso: We will have changes in management style. For instance: Agile project teams #sap#leogonehscheppHasso: Radical changes have to take place in development where necessary. #sap#leogoneMichaelKrokerHasso Plattner: "No difference in opinion between Léo and me on Strategy", "No Problems with Business By Design" > Wonder why #leogone then?paulhamerman#SAP#leogone Hasso: SAP must reestablish trust among all parties, must change this quickly.

Blogs sprung up over the weekend, speculating on the changes and what they mean. Some of the key blogs were:

Of course, now that the conference call has happened, I'm sure there will be a new set of analyses popping up, and the Enterprise Irregulars blog site is where you'll be sure to find the best analysis.

So, what is behind all these changes? My opinion, for what it's worth: Hasso Plattner wants to drive a great deal of technological innovation at SAP, and did not believe it could happen under Leo's leadership, and without Hasso's very direct involvement. Hasso has a great deal of confidence in Vishal Sikka's technology perspective, and Vishal was appointed to the Executive Board as part of this change, pointing to Hasso's desire to unleash a new wave of innovation at SAP. Jim Snabe will be given the opportunity to bring all of SAP's products under one head (both development and product ("solution") management). Bill McDermott has certainly already proven that he can run SAP's field, so there is not much risk in this change. Perhaps the biggest risk is on the product side. The product organization is full of conflicting technologies, conflicting interests, and conflicting agendas. Driving change in this kind of climate will be very challenging for Jim and Vishal.